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Sunday, July 30, 2006

More oil history from Greg Palast

This, via The Konformist, is from his new book Armed Madhouse. I should help the publishing industry asap & buy a copy. I wonder how many signatories of The Euston Manifesto will get around to reading it?

Keeping Iraq's Oil In the Ground By Greg Palast, AlterNet, June 14, 2006

World oil production today stands at more than twice the 15-billion
a-year maximum projected by Shell Oil in 1956 -- and reserves are
climbing at a faster clip yet. That leaves the question, Why this
war?

Did Dick Cheney send us in to seize the last dwindling supplies?
Unlikely. Our world's petroleum reserves have doubled in just twenty-
five years -- and it is in Shell's and the rest of the industry's
interest that this doubling doesn't happen again. The neo-cons were
hell-bent on raising Iraq's oil production. Big Oil's interest was
in suppressing production, that is, keeping Iraq to its OPEC quota
or less. This raises the question, did the petroleum industry, which
had a direct, if hidden, hand, in promoting invasion, cheerlead for
a takeover of Iraq to prevent overproduction?

It wouldn't be the first time. If oil is what we're looking for,
there are, indeed, extra helpings in Iraq. On paper, Iraq, at 112
billion proven barrels, has the second largest reserves in OPEC
after Saudi Arabia. That does not make Saudi Arabia happy. Even more
important is that Iraq has fewer than three thousand operating
wells... compared to one million in Texas.

That makes the Saudis even unhappier. It would take a decade or
more, but start drilling in Iraq and its reserves will about double,
bringing it within gallons of Saudi Arabia's own gargantuan pool.
Should Iraq drill on that scale, the total, when combined with the
Saudis', will drown the oil market. That wouldn't make the Texans
too happy either. So Fadhil Chalabi's plan for Iraq to pump 12
million barrels a day, a million more than Saudi Arabia, is not, to
use Bob Ebel's (Center fro Strategic and International Studies)
terminology, "ridiculous" from a raw resource view, it is ridiculous
politically. It would never be permitted. An international industry
policy of suppressing Iraqi oil production has been in place since
1927. We need again to visit that imp called "history."

It began with a character known as "Mr. 5%"-- Calouste Gulbenkian --
who, in 1925, slicked King Faisal, neophyte ruler of the country
recently created by Churchill, into giving Gulbenkian's "Iraq
Petroleum Company" (IPC) exclusive rights to all of Iraq's oil.
Gulbenkian flipped 95% of his concession to a combine of western oil
giants: Anglo-Persian, Royal Dutch Shell, CFP of France, and the
Standard Oil trust companies (now ExxonMobil and its "sisters.") The
remaining slice Calouste kept for himself -- hence, "Mr. 5%."

The oil majors had a better use for Iraq's oil than drilling it --
not drilling it. The oil bigs had bought Iraq's concession to seal
it up and keep it off the market. To please his buyers' wishes, Mr.
5% spread out a big map of the Middle East on the floor of a hotel
room in Belgium and drew a thick red line around the gulf oil
fields, centered on Iraq. All the oil company executives, gathered
in the hotel room, signed their name on the red line -- vowing not
to drill, except as a group, within the red-lined zone. No one,
therefore, had an incentive to cheat and take red-lined oil. All of
Iraq's oil, sequestered by all, was locked in, and all signers would
enjoy a lift in worldwide prices. Anglo-Persian Company, now British
Petroleum (BP), would pump almost all its oil, reasonably, from
Persia (Iran). Later, the Standard Oil combine, renamed the Arabian-
American Oil Company (Aramco), would limit almost all its drilling
to Saudi Arabia. Anglo-Persian (BP) had begun pulling oil from
Kirkuk, Iraq, in 1927 and, in accordance with the Red-Line
Agreement, shared its Kirkuk and Basra fields with its IPC group --
and drilled no more.

The following was written three decades ago:

Although its original concession of March 14, 1925, cove- red all of
Iraq, the Iraq Petroleum Co., under the owner- ship of BP (23.75%),
Shell (23.75%), CFP [of France] (23.75%), Exxon (11.85%), Mobil
(11.85%), and [Calouste] Gulbenkian (5.0%), limited its production
to fields constituting only one-half of 1 percent of the country's
total area. During the Great Depression, the world was awash with
oil and greater output from Iraq would simply have driven the price
down to even lower levels.

Plus ├ža change...

When the British Foreign Office fretted that locking up oil would
stoke local nationalist anger, BP-IPC agreed privately to pretend to
drill lots of wells, but make them absurdly shallow and place them
where, wrote a company manager, "there was no danger of striking
oil." This systematic suppression of Iraq's production, begun in
1927, has never ceased. In the early 1960s, Iraq's frustration with
the British-led oil consortium's failure to pump pushed the nation
to cancel the BP-Shell-Exxon concession and seize the oil fields.
Britain was ready to strangle Baghdad, but a cooler, wiser man in
the White House, John F. Kennedy, told the Brits to back off.
President Kennedy refused to call Iraq's seizure an "expropriation"
akin to Castro's seizure of U.S.-owned banana plantations. Kennedy's
view was that Anglo-American companies had it coming to them because
they had refused to honor their legal commitment to drill.

But the freedom Kennedy offered the Iraqis to drill their own oil to
the maximum was swiftly taken away from them by their Arab brethren.

The OPEC cartel, controlled by Saudi Arabia, capped Iraq's
production at a sum equal to Iran's, though the Iranian reserves are
far smaller than Iraq's. The excuse for this quota equality between
Iraq and Iran was to prevent war between them. It didn't. To keep
Iraq's Ba'athists from complaining about the limits, Saudi Arabia
simply bought off the leaders by funding Saddam's war against Iran
and giving the dictator $7 billion for his "Islamic bomb" program.

In 1974, a U.S. politician broke the omerta over the suppression of
Iraq's oil production. It was during the Arab oil embargo that
Senator Edmund Muskie revealed a secret intelligence report
of "fantastic" reserves of oil in Iraq undeveloped because U.S. oil
companies refused to add pipeline capacity. Muskie, who'd just lost
a bid for the Presidency, was dubbed a "loser" and ignored. The
Iranian bombing of the Basra fields (1980-88) put a new kink in
Iraq's oil production. Iraq's frustration under production limits
explodes periodically.

In August 1990, Kuwait's craven siphoning of borderland oil fields
jointly owned with Iraq gave Saddam the excuse to take Kuwait's
share. Here was Saddam's opportunity to increase Iraq's OPEC quota
by taking Kuwait's (most assuredly not approved by the U.S.).
Saddam's plan backfired. The Basra oil fields not crippled by Iran
were demolished in 1991 by American B-52s. Saddam's petro-military
overreach into Kuwait gave the West the authority for a more direct
oil suppression method called the "Sanctions" program, later changed
to "Oil for Food." Now we get to the real reason for the U.N.
embargo on Iraqi oil exports. According to the official U.S.
position:

Sanctions were critical to preventing Iraq from acquiring equipment
that could be used to reconstitute banned weapons of mass
destruction (WMD) programs.

How odd. If cutting Saddam's allowance was the purpose, then
sanctions, limiting oil exports, was a very suspect method indeed.
The nature of the oil market (a cartel) is such that the elimination
of two million barrels a day increased Saddam's revenue. One might
conclude that sanctions were less about WMD and more about EPS
(earnings per share) of oil sellers.

In other words, there is nothing new under the desert sun. Today's
fight over how much of Iraq's oil to produce (or suppress) simply
extends into this century the last century's pump-or-control
battles. In sum, Big Oil, whether in European or Arab-OPEC dress,
has done its damned best to keep Iraq's oil buried deep in the
ground to keep prices high in the air. Iraq has 74 known fields and
only 15 in production; 526 known "structures" (oil-speak for "pools
of oil"), only 125 drilled.

And they won't be drilled, not unless Iraq says, "Mother, may I?" to
Saudi Arabia, or, as the James Baker/Council on Foreign Relations
paper says, "Saudi Arabia may punish Iraq." And believe me, Iraq
wouldn't want that. The decision to expand production has, for now,
been kept out of Iraqi's hands by the latest method of suppressing
Iraq's oil flow -- the 2003 invasion and resistance to invasion. And
it has been darn effective. Iraq's output in 2003, 2004 and 2005 was
less than produced under the restrictive Oil-for-Food Program.
Whether by design or happenstance, this decline in output has
resulted in tripling the profits of the five U.S. oil majors to $89
billion for a single year, 2005, compared to pre-invasion 2002. That
suggests an interesting arithmetic equation. Big Oil's profits are
up $89 billion a year in the same period the oil industry boosted
contributions to Mr. Bush's reelection campaign to roughly $40
million.

That would make our president "Mr. 0.05%."

A History of Oil in Iraq

Suppressing It, Not Pumping It

1925-28 "Mr. 5%" sells his monopoly on Iraq's oil to British
Petroleum and Exxon, who sign a "Red-Line Agreement" vowing not to
compete by drilling independently in Iraq.

1948 Red-Line Agreement ended, replaced by oil combines' "dog in the
manger" strategy -- taking control of fields, then capping
production--drilling shallow holes where "there was no danger of
striking oil."

1961 OPEC, founded the year before, places quotas on Iraq's exports
equal to Iran's, locking in suppression policy.

1980-88 Iran-Iraq War. Iran destroys Basra fields. Iraq cannot meet
OPEC quota. 1991 Desert Storm. Anglo-American bombings cut
production.

1991-2003 United Nations Oil embargo (zero legal exports) followed
by Oil-for-Food Program limiting Iraqi sales to 2 million barrels a
day.

2003-? "Insurgents" sabotage Iraq's pipelines and infrastructure.

2004 Options for Iraqi Oil.The secret plan adopted by U.S. State
Department overturns Pentagon proposal to massively in crease oil
production. State Department plan, adopted by government of occupied
Iraq, limits state oil company to OPEC quotas.

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